Singapore Telecom Sector - UOB Kay Hian 2021-01-26: Rational Competition As Earnings Are Expected To Recover In 2H21

Singapore Telecom Sector - UOB Kay Hian | SGinvestors.io SINGTEL (SGX:Z74) NETLINK NBN TRUST (SGX:CJLU) STARHUB LTD (SGX:CC3)

Singapore Telecom Sector - Rational Competition As Earnings Are Expected To Recover In 2H21

  • We expect the competitive landscape to remain benign, even with TPG’s recent launch of S$18 for 80GB SIM-only plan. We believe the incumbents are on stronger footing, given their very own MVNO outfits to address SIM-only demand and importantly, the ability to differentiate premium offerings with nationwide 5G coverage. Maintain OVERWEIGHT.
  • Top picks are NetLink Trust (SGX:CJLU) and SingTel (SGX:Z74).
  • We downgrade StarHub (SGX:CC3) to HOLD as StarHub's share price has recovered 10% in 4Q20.



New product launches including TPG’s second product...

  • As of 3Q20, the Big 3 telcos (SingTel, StarHub and M1) commanded a 93% subscriber market share in Singapore. This is a 2ppt contraction to 95% y-o-y, given the proliferation of Mobile Virtual Network Operators’ (MVNO) SIM-only offerings.
  • Recently, the fourth telco, i.e. TPG Telecom launched its second SIM-only plan in Singapore. The pricing is attractive at S$18 for 80GB vs its maiden S$10 for 50GB product launched in 1Q20. Additionally, pockets of MVNOs like redONE and Circles.Life have also recently upgraded their SIM-only data quotas by 20-50% for free.


…aims at catching up with higher data usage during lockdown…

  • All these product enhancements/launches appear to indicate that MNVOs are playing catch-up to match accelerating data consumption patterns. Based on Infocomm Media Development Authority’s (IMDA) statistics, the average monthly mobile data usage per user has risen to 58GB 19GB in 3Q20 (+44% y-o-y, +14% q-o-q).
  • Importantly, our recent channel checks suggest that the incumbents have been unfazed by price competition in the market with little port out to TPG/other MVNOs in the past quarter. We believe this is due to two important factors:
    1. incumbents’ very own MVNO offerings to defend market share in Singapore, ie GIGA and GOMO; and
    2. differentiating the premium product via availability of 5G services.


…as we expect benign competition in Singapore with 5G product differentiation.

  • To recap, the Big 3 telcos with nationwide 5G licences have successively rolled out 5G trial services and 5G mobile plans since mid-Aug 20. The price/GB for 5G plans appears to be much more attractive than the existing 4G plans.
  • We understand that the uptake rates for 5G mobile plans have been encouraging. We note that TPG has yet to offer 5G services and will likely look towards securing wholesale arrangement with the 5G spectrum holders.
  • All in all, we expect a relatively benign competitive landscape for 2021 as incumbents defend their positions with nationwide 5G access, good network quality and wider coverage.


1H21 recovery likely to be aided by resumption of handset sales and ICT revenue.

  • Due to the closure of retail stores during the circuit breaker and reduced customers’ footfalls, telcos’ handset sales in 9M20 declined by an average of 30% y-o-y. Positively, our channel checks suggest the arrival of 5G-enabled handsets (especially the iPhone 12 series) in mid-Oct 20 has led to an uptick in handset sales as customers upgrade to 5G handset/plans.
  • In addition, a gradual recovery in business sentiment against a backdrop of the reopening of the economy has boosted demand for project-based services, ie information and communications technology (ICT) solutions and cybersecurity services. This will benefit SingTel and StarHub and aid towards their earnings recovery for 2020. The enterprise segment accounts for 34% and 33% of their group revenue respectively.
  • Excluding the one-off jobs support scheme credits from the government, we expect SingTel and StarHub’s net profit to grow 44% y-o-y and 15% y-o-y for FY22 and FY21 respectively.


Maintain OVERWEIGHT on SG telecommunication sector

  • Maintain OVERWEIGHT on Singapore telecom sector, given undemanding valuation and earnings recovery in 2021. The sector is currently trading at 1 standard deviation below its 5-year mean EV/EBITDA of 13x. We believe earnings recovery should be more certain, given the benign competitive landscape and relatively better control of COVID-19 cases. We also believe the nationwide 5G rollout will help the incumbents sustain market share.
  • Pronounced earnings uplift from the enterprise business may take longer to bear fruit as telcos continue to explore new business applications for 5G. Our top pick is undervalued SingTel and defensive NetLink Trust. SingTel will benefit from the reopening of economies in the region.

NetLink Trust (SGX:CJLU)


SingTel (SGX:Z74)


StarHub (SGX:CC3)



Nationwide 5G coverage by 2025.

  • SingTel and the StarHub-M1 JV have been awarded the rights to build Singapore’s two nationwide 5G networks on the 3.5 GHz spectrum. The aim is to provide 50% of the population 5G coverage by 2022 and to achieve nationwide coverage by 2025. Assuming about S$550m is needed for a standalone 5G rollout in Singapore, the additional capex will be well spread over four years and works out to be S$150m annually for telcos. This helps to ease cash flow constraint on Singapore telcos and pave the way for sustainable dividend yields.

5G journey of sharing backhaul.

  • The StarHub-M1 JV encompasses the sharing of the active radio network, including the 3.5GHz spectrum, antennas, radio base stations and transmission backhaul. In addition, the JV would be jointly wholesaling the nationwide 5G access to other mobile operators and MVNOs. Having said that, the core network for 5G and existing 3G/4G would still be run independently and services to consumers and enterprises would remain fully differentiated. Given the synergy from collaboration with M1, we gather that the 5G capex for StarHub alone is estimated at S$200m over five years, starting 2H20.

Digital banking licence: Minimal near-term earnings impact.

  • As the Grab-SingTel consortium focuses on:
    1. fulfilling MAS’s licence requirements;
    2. drawing up product proposition; and
    3. focusing on innovative digital delivery platform in the next 12-24 months,
  • we see little earnings impact for SingTel in FY21-23. We believe meaningful earnings contribution will materialise only in 4-5 years’ time as the new licencees are digital-only banks and do not have any physical branches (only one physical office for face-to-face interactions with customers). DFBs are not allowed to operate automated teller machines (ATM) and cash deposit machines (CDM) or join any existing ATM/CDM networks.
  • See also recent reports on Singapore banking sector:
  • A faster-than-expected take-up rate and exceptional customer experience can help drive early earnings accretion from this digital banking venture, we opine.


Comparison of postpaid mobile plans and SIM-only mobile plans in Singapore

  • See PDF report below for
    1. Comparing of M1, SingTel and StarHub's 4G and 5G postpaid mobile plans (24-month contract), and
    2. Comparison of SIM-only mobile plans by SingTel, GOMO, StarHub, GIGA, M1, TPG, Grid Mobile, VIVIFI, Circles.Life, MyRepublic, VIVOBEE and redONE.





(Edited on 27-Jan-2021 9:50am)


Chong Lee Len UOB Kay Hian Research | Chloe Tan Jie Ying UOB Kay Hian | https://research.uobkayhian.com/ 2021-01-26
SGX Stock Analyst Report BUY MAINTAIN BUY 2.840 SAME 2.840
BUY MAINTAIN BUY 1.080 SAME 1.080
HOLD DOWNGRADE BUY 1.400 SAME 1.400



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